Mendelssohn plc is a trading company importing & reselling music instruments to music shops.

You are the finance controller of this company and you are preparing the 20X9 budget. You have gathered the following information for 20X9:

1.Revenue is expected to grow in 20X9 to reach 8,025,000. Customers have been granted a 1 month credit payment term. Due to Christmas seasonality, we can assume that 15% of the sales will occur in December.

2.Music instruments purchases in 20X9, all on credit, are estimated at 6,800,000. We have negotiated a 2 months payment term with the suppliers as the instruments take more than a month to be transported by boat containers. We estimate that the November & December purchases should represent 12% of the yearly purchases.

3.We have a small inventory of music instruments for last minute orders. We target an inventory level of 350,000 at the end of December 20X9.

4.New IT system (server + ERP) costing 180,000 to be purchased for cash on February 1^st 20X9. It will be depreciated over 5 years. Residual value of purchased fixed asset is nil. Depreciation is to be provided on all other fixed assets at the rate of 10% per annum on original cost.

5.Operating expenses (excluding depreciation) are expected to be 60,000 per month. All are paid cash.

6.A 1,500,000 loan was taken on April 1st 20X4. It is paid back in 5 installments of 300,000 on March 31st every year (so the first installment was paid on March 31, 20X5). Interest is paid at a rate of 6% per annum, also on March 31st of each year (so the first interests were paid on March 31, 20X5).

7.The CEO will propose to shareholders to distribute part of the 20X8 net income as dividends. The dividends that should be distributed in May 20X9 would amount to 50,000.

8.The company's income tax rate is 30%. Income tax related to this year operations is paid the following year.

The balance sheet of Mendelsohn on 31 December 20X8 is expected to be:

Assignment : using the templates available on Moodle, prepare

1/ Mendelsohn's budgeted income statement for 20X9

2/ Mendelsohn's cash budget (direct and indirect method) for 20X9

3/ Mendelsohn's budgeted balance sheet as of December 31^st, 20X9

4/ recommendations to the CEO.